Small Business Income Tax Returns Explained By A Melbourne Business Accountant
Australian companies turning over less than $10 million a year are classified as ‘small businesses’ by the ATO. Small businesses employ 5.5 million people, contribute $380 billion to the economy and account for more than 99% of all Aussie businesses.
This is not to be confused with the ABS definition which is any business employing fewer than 20 people. In this guide we’re talking tax, so we’ll stick to the ATO definition.
Understanding and managing income tax is essential to running a business. Business tax is not an easy area to become an expert in which is why you need a highly experienced, forward-thinking Melbourne business accountant looking after you.
Good to know: The $10 million threshold is aggregated turnover, meaning it includes gross income (ex GST) of any affiliated or connected businesses.
Income Tax For Business Explained
Do I need to lodge a tax return?
If you are operating a business that earns income, the answer is yes. This includes sole traders, partnerships, trust, and regular companies.
What to include in annual tax returns
| Sole traders | • Business income, less deductions • Other income received (salary, wages, dividends, rental income) |
| Partnerships | • Business income, less deductions • Other income received (salary, wages, dividends, rental income) |
| Trusts and beneficiaries | • Income received from the trust • Other income received (salary, wages, dividends, rental income) |
| Companies | • Taxable income • Tax offsets and credits • PAYG instalments • Amount of tax liable to pay |
The amount of tax a business is liable to pay depends on taxable income. That calculation, at least, is simple: add up all the assessable income your business receives and subtract deductions.
Good to know: There is no tax-free threshold for companies, but take out, Trusts, sole traders, or partnerships.
Your Guide To PAYG
Pay as you go (PAYG) can refer to two important tax tasks for small business accounting:
- PAYG instalments
- PAYG withholding
Don’t worry if you’re confused, simply book a consultation with your Melbourne tax accountant and we can outline your requirements to avoid a shock at tax time and ensure your employees are paying the right tax.
PAYG instalments
PAYG tax instalments are paid to the tax office. Instalments are normally paid quarterly to avoid big shocks at EOFY by spreading tax payments throughout the year.
When your business reaches one of the ATO’s entry thresholds you will be required to make PAYG instalments:
Individuals and trusts
| Reason | Entry threshold |
|---|---|
| Instalment income from your latest tax return | $4,000 or more |
| Tax payable on your latest notice of assessment | $1,000 or more |
| Estimated (notional) tax | $500 or more |
Companies and super funds
| Reason | Entry threshold |
|---|---|
| Instalment income from your latest tax return | $2 million or more |
| Estimated (notional) tax | $500 or more |
| You're the head of a consolidated group | $0 or more |
(Both tables from https://www.ato.gov.au/general/payg-instalments/)
The ATO will let you know when you need to start paying PAYG instalments. Bring that advice to your Melbourne business accountant at Scott Partners and we can help you structure repayments to ensure you’re always up to date.
Good to know: Small businesses could be subject to a 27.5% tax rate (rather than 30%) in FY2019/2020.
PAYG withholding
As an employer, you help your workers fulfil their tax responsibilities by paying tax on their behalf throughout the year. Like PAYG instalments for your business, this helps employees and contractors avoid large tax bills on June 30.
We can help you register for PAYG withholding, and help you to negotiate your STP requirements.
Good to know: The ATO has a helpful tax withheld calculator to help you determine how much tax, including Medicare levy and study loans, to withhold from employees.
Small business tax help from the experts
Tax is tricky at all levels of business. As a Melbourne business accountant we partner with companies large and small to navigate the complexities of tax.
For more than 30 years we have been providing forward-thinking business tax advice backed by a deep knowledge of business tax and statutory requirements.
To get the help you need in all areas of business tax, business structure and planning, auditing, bookkeeping and payroll, business advisory services and much more, contact Scott Partners today.
